Blog of Jeff Vandrew Jr, Attorney-CPA

There are three basic ways in which two people can take co-ownership of property in New Jersey: joint tenancy, tenancy in common, and tenancy by the entirety. Of those three, only tenancy by the entirety provides any sort of asset protection at all. Tenancy by the entirety is a very special type of ownership available in less than half of states. In this post, I will discuss what tenancy by the entirety is, and the protection it provides in New Jersey.

Tenancy by the entirety (“TBE”) is a form of joint ownership only available to husbands and wives, and in New Jersey, civil union partners. When spouses hold property as TBE, they each hold an undivided one-half interest in the property, along with a right of survivorship. This means that upon the death of one spouse his interest in the property passes automatically, despite what his will might say, to his spouse. Also, neither spouse may sell his or her interest in the property without consent of the other spouse. N.J.S.A. 46:3-17.4.

The default rule, and the absolute rule in most states that recognize TBE, is that TBE property cannot be levied by a creditor unless the creditor has a judgment against both spouses. If a creditor has a judgment against only one spouse, he has a lien against the property but cannot foreclose upon that lien. The creditor of only one spouse is basically entitled to three things:

1. Satisfaction of the debt if the property is sold. Because the debtor has a lien against the property, if the property is ever sold, the sales proceeds must be used to satisfy the creditor’s judgment.

2. The debtor’s right to survivorship. If the non-debtor spouse dies before the debtor spouse, the creditor can step into the shoes of the debtor spouse and take the entire property.

3. The debtor’s right to occupy the property. The creditor technically takes the debtor’s right to occupy the property in question. In real life, the creditor rarely wants to actually occupy the property. However, a right to occupy legally entitles the creditor to more than just physical occupancy. Due to the right to occupy, if the property is not the non-debtor spouse’s residence whatever income the property generates must be split between the non-debtor spouse and the creditor. Also, if the non-debtor spouse uses the property as a residence, the creditor is entitled to some level of payment from the non-debtor spouse for her ability to occupy without the creditor. See, e.g., S.E.C. v. Antar, 120 F. Supp. 2d 431, 449-51 (D.N.J. 2000) aff’d, 44 F. App’x. 548 (3d Cir. 2002).

The main selling point of TBE is that despite the creditor obtaining the above rights, he doesn’t get the right he really wants: the right to foreclose. However, in New Jersey, in certain circumstances a judge may ignore the traditional protections of TBE and order foreclosure of the property anyway:

Fairness dictates that a family not be dispossessed of its home as a result of one spouse’s debts. On the other hand, New Jersey courts have not held that creditors are never entitled to obtain partition of property held as a tenancy by the entirety…. Thus, a court is permitted to exercise its equitable discretion in deciding whether to allow partition or foreclosure.

If you live in a reasonable home, it is probably a good bet that a court will allow the traditional TBE protections for your primary residence and will not allow foreclosure. However, if you live in a lavish home or are seeking TBE protections for a non-residence, there is a good change a court will order foreclosure in New Jersey.

In short, TBE does provide some asset protection, but in New Jersey it is not perfect. I would generally not recommend relying on it for assets other than a principal residence, and even then it has downsides. The upside is that it is extremely easy and cheap to implement. If you are interested in TBE, or would like to learn about other asset protection mechanisms that provide more protection than TBE, feel free to contact me.

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.